#378 - GameStop Highlights the Folly of Taxing Unrealized Capital Gains

Imagine a mark-to-market capital gains tax, like the one proposed in New York, generating liability in a GameStop-style situation where retail investors have shares that have soared in value by orders of magnitude, get taxed on those gains, and then hold on too long and sell as the stock crashes back to earth. Whether you see the GameStop saga as a Robin Hood-style victory for the little guys or as a case of disruptive investor hysteria, it provides an interesting case study in just how badly the mark-to-market treatment of capital gains income could go awry.

New York lawmakers have proposed that the tax treatment be applied, at least initially, to only the wealthiest New Yorkers, people who presumably weren’t (mostly) getting their investment strategy from Reddit. So the thought experiment here is not to say “New York’s proposal would have hit those buying shares of GameStop” so much as to illustrate how the tax works (or rather, doesn’t) and to imagine what it would mean if mark-to-market treatment of capital gains were applied to all taxpayers, not just the wealthy—or at least on a broader definition of the wealthy.

Join your host Sean Reynolds, owner of Summit Properties NW and Reynolds & Kline Appraisal as he takes a look at this developing topic.

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